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SPAC issuance jumps to the highest since March as deals rush to market before year-end

The SPAC market could be staging a comeback with issuance hitting an eight-month high as the industry continues to ride out regulatory challenges.

 

A total of 57 special purpose acquisition companies began trading in October, the highest amount since March when a record of 109 SPACs were issued, according to SPACInsider and CNBC calculations. The number of new deals in October nearly doubled that in September and was also higher than the total during the same time last year, the data showed.

The rebound came as a backlog of blank-check deals held up by accounting and other regulatory issues rushed to the market before the year ends. The Securities and Exchange Commission in April issued new accounting guidance on SPAC warrants that required sponsors to restate their financial documents, which led to a significant slowdown in issuance.

 

"That was a hiccup, but once the rules of the road were established, that was taken care of pretty quickly by accounting firms and law firms," said Perrie Weiner, partner at Baker McKenzie LLP.

 

SEC Chairman Gary Gensler has repeatedly warned of the misaligned interests between sponsors and shareholders and said greater disclosure is needed. Gensler said in June that the agency planned to propose rule changes. 

 

"The SEC's focus is on transparency, on conflicts of interest and on concerns of share dilution," Weiner said. "I think that once the SEC gets comfortable and investors are going in eyes open, it will become just like any other widely accepted financing structure. It's definitely here to stay."

 

While SPAC issuance has bounced back, stock performance hasn't. The proprietary CNBC SPAC 50 index, which tracks the 50 largest U.S.-based pre-merger blank-check deals by market cap, is still down about 3% on the year.

 

Meanwhile, SPAC redemptions have been climbing amid waning investor appetite. The average SPAC redemption ratio — the percentage of shares that investors redeem prior to closing of an acquisition — has risen in the last two quarters, after falling to all-time lows in the first quarter, according to Barclays.

Delivering Alpha Headlines

Big thoughts from the big money

David Tepper doesn't think stocks are a great investment here

Hedge fund manager David Tepper is uncertain about the stock market, citing uncertainties around interest rates and inflation. "I don't think it's a great investment right here," Tepper told CNBC. "I just don't know how interest rates are going to behave next year... I don't think there's any great asset classes right now." The founder of Appaloosa Management, whose comments have been known to move markets, said his hedge fund has been "probably too conservative" this year but has done OK because of its bets on commodities and oil.

Dan Loeb remains constructive but increasingly cautious on the market

Third Point's Dan Loeb said a rollback of the unprecedented Covid stimulus will put pressure on the markets, but he continued to be bullish on the back of a strong consumer. "Looking ahead to 2022, we remain constructive but increasingly cautious, as the tapering of fiscal and monetary stimulus should reduce support for asset prices," the hedge fund manager said in his latest investor letter. "On the positive side, consumer balance sheets remain robust and inventories low, allowing for sell-in, and transitory supply shocks should resolve over the next few quarters."

Jeffrey Gundlach says inflation will stay above 4% through 2022

Billionaire bond investor Jeffrey Gundlach said inflation in consumer prices likely will remain elevated through 2021 and stay above 4% through at least 2022. Gundlach conceded that some price increases, such as lumber and some other commodities, are temporary, but said others are not. His comments come with the CPI, which measures a broad basket of consumer goods prices, increasing at a 5.4% annual pace when including food and energy costs, the fastest in 30 years.

 

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